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White Paper

March 2008

Corporate Responsibility: Theduties and liabilities of thecorporationAbstract

The recent QANTAS Airways Limiteds case involving price fixing comes soon

after the Visy Group of companies case in the Federal Court of Australia.The Visy Groups case concerned cartel conduct involving price fixing, marketsharing and other anti-market agreements among business rivals. TheQANTAS case concerned price fixing on cargo shipments and the matter wasfiled in the United States District Court for the District of Columbia. QANTAS

pleaded guilty and agreed to pay a fine.

These cases involve trade practices law. They give insights into distinguishingthe duties and responsibilities of corporate officers and the corporation. Theyalso show the trend to involve corporate officers as well as the corporationwhere the corporation breaches the law.

Corporations are not only subject to civil penalties and emerging criminalsanctions under trade practice law in Australia and overseas and toworkplace safety laws. Managers of a corporation irrespective of its size mustensure that their corporations comply with all law and demonstratecompliance using compliance mechanisms that can be reported on in thecorporations annual report to members. Legal compliance is not confined to

Australia but extends to places where the corporation operates its business.

Corporate responsibility is not confined to legal compliance. It involvesupholding the corporations reputation in the community in which itoperates. The actions of corporations are being influenced by socialresponsibilities that include managing dangerous substances and materials,limiting contamination of the environment and controlling pollution andother substances to lower the corporations impact on climate change.Corporate responsibility for corporate reputation is not limited to

preventative measures but includes proactive measures to act positively inthe community and the broader environment.

Corporate responsibility involves vigilance in the performance of duties to

avoid liabilities using effective risk management. Risk management shouldnot be confined to preventing liability but to extend the range of thecorporations activities to be active and positive contributors not only to theeconomy but also the broader environment. Market measures such ascarbon trading will assist corporations to be proactive in reducing the impacton climate change. Over time more market measures and mechanisms willevolve to provide incentives for better performance of corporations.

Corporations and its officers can be made liable in relation to theirresponsibilities. This paper shows how corporations are made liable by theknowledge and acts of its officers.


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Corporate Responsibility: The duties and liabilities of the corporation

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Overview

The study of corporate responsibility requires an understanding of the nature of corporate responsibility andrecognition that the term can be used in a variety of ways. This paper will explore the ways in which the notionof corporate responsibility is used and looks at corporate responsibility in the law.

Corporate responsibility is dealt with differently at law due to differing principles being used by the courts todeal with wrongful actions by corporations and their officers. It is for this reason that this paper examines thecommon law themes drawing together the various principles and rules that are used by the courts and thestatutory law interpretation of the general law principles for specific purposes to make corporations liable. Inaddition, directors and other corporate officers are being made liable for wrongful acts and for criminalactivities. The latter cases involve strict liability imposed by statutory laws imposing criminal penalties. The formercases involve the application of rules to attribute the acts of natural persons to the corporation. The liability of acorporation can arise from the acts of employees as well as acts of senior managers. Also, directors and otherofficers can be personally liable or liable as joint tortfeasors.

The common law development of corporate responsibility has seen the development of tests and rules toestablish principles to deal with matters of tort and criminal law activities committed by the corporation. Aparallel issue is the responsibility of directors and other officers. The development of joint tortfeasors for civilwrongs with notions of primary and secondary liabilities has appeared to complicate the legal principles as

applying to corporate responsibility. The paper will focus on corporate responsibility and the liability of thecorporation and identify the liability of directors and other officers in the context of corporate responsibility. Buta brief overview of principles making directors liable with the corporation is useful to see how that scenario ispossible at law.

Identification principle

The identification of a natural person as the corporation or as its agent has been a principle of law to ascribe tothe corporation the persons knowledge and actions. This has caused concerned where persons have escapedliability where the act has been taken as the act of the corporation. Legal commentators claim that this outcomeresults from a misunderstanding of the identification doctrine, and cannot be sustained.

1

The English law has moved on from this principle to include the notion of agency in a larger principle ofattribution which is taken to be the relevant principle to attribute the knowledge and actions of a natural personto the corporation

2. A consequence of this development is that a corporations hierarchy of officers (the

directing mind and will of the corporation) is no longer relevant to a corporations liability. Instead, an

individuals performance of functions has been brought into focus. This means that the actions of low levelemployees could be attributed to the corporation. Consequently, the criterion for attribution, focusing uponthose who had responsibility for the matter with which the rule is concerned, is not predicated upon theindividuals ability to control or influence the overall conduct of the company, only the matter with which therule is concerned. In particular, it now seems far more likely that the actions of branch managers, section headsand thosewith operational autonomy, will be attributed to the company.

3

Direct or procure test

The direct or procure test has emerged to apply liability to officers of a corporation where they have notcommitted the tortuous acts

4. They are committed by junior employees of the corporation. The senior corporate

officer is made secondarily liable for the acts of the individual who is primarily liable and whose acts make thecorporation vicariously liable. This test is inherent in the joint tortfeaser notion where a director or senior officeris made secondarily liable to the corporation that is primarily liable to the claimant

5.

1Campbell N & Armour J, Demystifying the Civil Liability of Corporate Agents, 62 Cambridge Law Journal290 at 292.

2Grantham R, Corporate Knowledge: Identification or Attribution?, 59 MLR 732.

3Grantham R, Corporate Knowledge: Identification or Attribution?, 59 MLR 732 at 734.


5Campbell N & Armour J, Demystifying the Civil Liability of Corporate Agents, 62 Cambridge Law Journal290 at 298; Root

Quality PtyLtd v Root Control Technologies Pty Ltd(2000) 177 ALR 231 at 259; CBS Songs Ltd v Amstrad Consumer Electronicsplc[988] AC 1013.


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Australian law on corporate responsibility

The High Court of Australia has not accepted the attribution principle adopted by the Privy Council6. It has not

overruled it either. The High Court may be adopting a wait and see attitude before considering the Englishlaw principle. Nonetheless, the principle has been used in lower courts in Australia.

The law as found by the High Court is based on the directing mind and will principle where an individual is orindividuals are the embodiment of the corporation. The latest leading law7 in Australia is Krakowski v Eurolynx

Properties Ltd(1995) 183 CLR 563. This law is that a corporation is responsible based on the knowledge ofcorporate officers who are responsible in their respective division of functions for different aspects of atransaction. This law is expounded by other Australian courts and the relevant principles are discovered for eachparticular case. In a broad sense, the law is explained by Bryson JA in North Sydney Council v Roman

8as:

Corporations can only have knowledge and they can only function through persons within theirorganisations: legislationwhich treats a corporation as having actual knowledge can only beunderstood as attributing to the corporation the actual knowledge of the person within its organisationwho relevantly functions as the corporation.

Bryson JA also said in Nationwide News Pty Ltd v Naidu; ISS Security Pty Ltd v Naidu9 that finding the personwho is the directing mind and will of the corporation is a factual matter:

InArthur Guinness, Son & Company (Dublin) Ltd v The Freshfield (Owners) and Ors: (The LadyGwendolen) [1965] P 294 Willmer LJ explained at 343 that it was necessary to look closely at theorganisation of the company in order to ascertain of what individual it can fairly be said that his act oromission is that of the company itself. His Lordship referred to the passage in the speech of ViscountHaldane to which I have just referred. The inquiry is initially a factual matter: see Lennards CarryingCompany Limited v Asiatic Petroleum Company Limitedper Dunedin LJ at 715.

A further reference was made by Bryson JA to the English cases in relation to identifying the person:

Willmer LJ also referred to the statement of Denning LJ in Bolton (HL) Engineering Co Ltd v TJ Graham &SonsLtd[1957] 1 QB 159 at 172-173 where his Lordship, after drawing a distinction between those in acompany who would be servants and agents who did the work, and of those who were directors andmanagers who represented the mind and will of the company, stated that whether the intention of suchdirectors or managers was the companys intention, depends on the nature of the matter underconsideration, the relative position of the officer or agent and the other relevant facts and circumstancesof the case.

After referring to Lord Reids statement in Tesco Supermarkets Ltd v Nattrass [1972] AC 153, Byrson JA says:

These authorities have been consistently applied in Australia. It is sufficient to refer to Hamilton vWhitehead[1988] HCA 65; (1988) 166 CLR 121; Director General, Department of Education andTraining v MT[2006] NSWCA 270; (2006) 67 NSWLR 237; and North Sydney Council v Roman [2007]NSWCA 27; (2007) 150 LGERA 419.

A final reference is to Callaway JA in Director of Public Prosecutions Ref No 1 of 199610:

Sometimes only the board of directors acting as such or a person near the top of the corporationsorganisation will be identified with the corporation itself. On other occasions someone lower, andperhaps much lower, in the hierarchy will suffice.

6The discussion of the development in English law of principles attributing the knowledge and actions of individuals to the

corporation can occur on an academic level. This discussion can be seen in references given in the paper. An alternative

discussion is the case study approach where the words of the cases speak to show the development of the law. The academiccomment enlightens this discussion. This latter approach is taken in the paper.7The High Court of Australia has considered the English law principles in other cases such as Hamilton v Whitehead(1988)

166 CLR 121 which is discussed in the paper.8[2007] NSWCA 377. Bryson JA referred to the direct liability of a corporation as distinct from vicarious liability in Nationwide

News Pty Ltd v Naidu; ISS Security Pty Ltd v Naidu [2007] NSWCA 377 which was explained by Viscount Haldane LC inLennards Carrying Company Limited v Asiatic Petroleum Company Limited[1915] AC 705 at 713 where it was said: acorporation is an abstraction. It has no mind of its own any more than it has a body of its own; its active and directing willmust consequently be sought in the person of somebody who for some purposes may be called an agent, but who is reallythe directing mind and will of the corporation, the very ego and centre of the personality of the corporation.9[2007] NSWA 377.

10[1998] 3 VR 352.


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By not adopting outright the rules of attribution as applying in English law the law in Australia is not binding thecourts to applying a formula of specified rules or principles to the varying array of torts and criminal sanctionsinvolving corporations. This approach is not inhibiting Australian courts in adopting the English law principlesand rules of attribution such as North Sydney Council v Roman and Nationwide News Pty Ltd v Naidu; ISS Security PtyLtd v Naidu in the case of New South Wales courts.

The relevant tort as well as the particular facts of a matter or the policy of legislation imposing criminal penaltiescan be determined accordingly and not necessarily be placed in a straight-jacket to arrive at some preconceivedset of rules. The English law principle of attribution does not apply in every case but it may be used providedthey are appropriate for the circumstances of the case and used in a manner of a framework. The risk thatmatters of wrongdoing may be channeled into a result that may not be appropriate for the particular set ofcircumstances should be avoided. However, where the rules of attribution are used they should be consistentwith sound legal principles (Citizens Life Assurance Company, Limited v Brown

11).

Statutory corporate responsibility

In addition to the common law, statutory law deals with the notion of corporate responsibility. This can be seen,for example, in Trade Practices Act 1974 (Cth), s 84 extracted (with commentary) in the Annexure. Statutoryprovisions tend to make a corporation liable but fail to provide for the acts of individuals being attributed to thecorporation. Hence, the development of the identification principle or a special rule of attribution12.

Concept of corporate responsibility generally

The concept of corporate responsibility is used in relation to a corporations social and environmentalresponsibilities as well as its economic responsibilities. The concept of shareholder value is no longer the onlyfocus for corporate responsibility. Increasingly, stakeholder interests are being recognised as an important partof corporate responsibility.

Corporate responsibility

Much is said about corporate social responsibility and triple-bottom-line reporting. The recent report of theParliamentary Joint Committee on Corporations and Financial Services, Corporate responsibility: Managing riskand creating value (June 2006), says:

Corporate responsibility is emerging as an issue of critical importance in Australias business community.This inquiry has provided the committee with the opportunity to closely examine this increasinglyimportant aspect of the corporate governance of Australian companies.

An important observation made in the report says:

Corporate responsibility is usually described in terms of a company or organisation considering,managing and balancing the economic, social and environmental impacts of its activities. During thecourse of the inquiry the committee received a great deal of evidence of the way many Australiancompanies are employing responsible corporate approaches to manage risk and to create corporatevalue, in areas beyond a companys traditional core business. Some Australian companies are leading thepush towards greater sustainability, and have been key contributors to global developments in theestablishment of sound mechanisms to report on sustainability.

Corporate responsibility is not a legally defined term. Its description and meaning varies with the context inwhich it is discussed

13. The term incorporates corporate social responsibility together with the corporations main

economic activities to make profits and provide dividends and other returns to shareholders and investors.

The notion of corporate responsibility is economic as corporations seek to maximise returns by limiting risk suchas regulatory risk. This risk management process is fundamental to the corporations operations. TheParliamentary Joint Committees report observes:

Evidence received suggests that those companies already undertaking responsible corporate behaviourare being driven by factors that are clearly in the interests of the company. Maintaining and improvingcompany reputation was cited as an important factor by companies, many of whom recognise that whencorporate reputation suffers there can be significant business costs. Evidence also strongly suggested thatan enlightened self-interest approach assists companies in their efforts to recruit and retain high qualitystaff, particularly in the current tight labour market.

11[1904] AC 42 at 426.


13See discussion in Nolan J, Corporate responsibility in Australia: rhetoric or reality?, 2007 UNSWLRS 47 (10 August 2007).


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In relation to managing the risk of regulation, the report says:

Also reflecting an enlightened self-interest approach and driving corporate responsibility was the desireof companies to avoid regulation. Many companies recognise that by taking voluntary action to improveresponsible corporate performance, corporations may forestall regulatory measures to control theirconduct. It was also evident that for many companies, acting in a responsible corporate manner was inthe interests of the company because such behaviour attracted investment from ethical investment funds,a sector of increasing importance in Australia. Mainstream institutional investors, such as superannuationfunds, are also becoming a strong driver towards corporate responsibility, as they increasingly recognisethe importance of how companies manage their non-financial risks to overall financial performance.

The concept of corporate responsibility described in the Parliamentary Joint Committees report differs from theconcept as developed in the general law which concerns attributing responsibility to the corporation by the actsof authorised persons. However, developments in the general law will come to merge the concepts of corporateresponsibility as issues are clarified in the courts. In recent times corporate responsibility has been coming underscrutiny.

How corporations are made responsible

A corporation is responsible for its own actions. It is a separate legal entity from its directors and othercompany officers and staff. Since Saloman v Saloman Co Ltd

14 corporations have been recognised as separatelegal entities. The corporation, its directors and employees, and shareholders are separate legal entities.

However, corporate responsibility is intrinsically linked with the responsibilities of directors and other seniormanagers15. A discussion of corporate responsibility must involve the responsibilities (or duties) of directors andmanagers

16. In The Queen v Goodall

17, Bray CJ expressed the view that the logical consequence of Salomon's

Case...is that the company, being a legal entity apart from its members, is also a legal person apart from thelegal personality of the individual controller of the company, and that he in his personal capacity can aid andabet what the company speaking through his mouth or acting through his hand may have done." Bray CJreferred this situation as a sort of metaphysical bifurcation or duplication of one act by one man so that it is inlaw both the act of the company and the separate act of himself as an individual. The High Court of Australiaagreed with this view in Hamilton v Whitehead

18. Also, Houghton v Arms

19 referred to the reasoning of Bray CJsaying:

recognition of the distinct legal identity of a corporation had the consequence that in law the act of anindividual might be both a corporate act and the separate act of the actor as an individual.

The ability of directors and managers to manage the corporation is critical to the reputation of the corporationand hence upholding corporate responsibility. The discussion in this paper does not examine directors duties

but it emphasises the necessity for directors to oversee the management of the corporation to avoid them beingmade accountable for the actions of others who do acts that binds the corporation in its corporate responsibilityrole. The paper examines the responsibility of the corporation that clearly relies on directors and other companyofficers performing their duties for the benefit of the corporation as a whole. The corporation as a wholedepends on this performance by managers as it affects corporate responsibility, the effectiveness of corporategovernance and constant monitoring of performance. The separation of the corporation from its directors andmanagers present a problem for determining who is liable in tort and for purposes of statutory provisionsmaking certain acts criminal. The acts of the board and managers (and for shareholders in general meeting)would be seen as those of the corporation and not those of the individuals. They are exercising powers andfunctions of the corporation and not in their own capacities. This is expressed in Trevor Ivory Ltd v Anderson

20:

in appropriate circumstances they [the directors] are to be identified with the company itself, so thattheir acts are in truth the companys acts. Indeed I consider that the nature of corporate personalityrequires that this identification normally be the basic premise and that clear evidence be needed to

14 [1897] AC 22.15

The High Court in Krakowski v Eurolynx Properties Ltd(1995) 183 CLR 563 agreed with Bright J in Brambles Holdings Ltd. v.Carey(1976) 15 SASR 270 at 279: Always, when beliefs or opinions or states of mind are attributed to a company it isnecessary to specify some person or persons so closely and relevantly connected with the company that the state of mind ofthat person or those persons can be treated as being identified with the company so that their state of mind can be treated asbeing the state of mind of the company.16

A distinction may be made between the corporation and its officers where there is fraud as shown in Krakowski v EurolynxProperties Ltd(1995) 183 CLR 563 and Standard Chartered Bank v Pakistan National Shipping Corporation [2002] UKHL 43.17

(1975) 11 SASR 94 at 101.18

(1988) 166 CLR 121.19

[2006] HCA 59.20

[1992] 2 NZLR 57 at 527.


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displace it with a finding that a director is acting not as the company but as the companys agent orservant in a way that render him personally liable. (per Cooke P)

The general rule according to Trevor Ivory Ltd v Anderson is that directors and senior managers would tend tonot be personally liable where the acts are those of the corporation. Only the corporation is responsible for theacts. A directors acts are only attributed to the corporation and not concurrently to the director as well

21.

However, the law in England has reversed this view. Lord Hoffmann of the House of Lords said about the acts ofMr Mehra, director of Oakprime Limited:

My Lords, I come next to the question of whether Mr Mehra was liable for his deceit. To put thequestion in this way may seem tendentious but I do not think that it is unfair. Mr Mehra says, and theCourt of Appeal accepted, that he committed no deceit because he made the representation on behalfof Oakprime and it was relied upon as a representation by Oakprime. That is true but seems to meirrelevant. Mr Mehra made a fraudulent misrepresentation intending SCB [Standard Chartered Bank] torely upon it and SCB did rely upon it. The fact that by virtue of the law of agency his representation andthe knowledge with which he made it would also be attributed to Oakprime would be of interest in anaction against Oakprime. But that cannot detract from the fact that they were his representation and hisknowledge. He was the only human being involved in making the representation to SCB (apart fromadministrative assistance like someone to type the letter and carry the papers round to the bank). It istrue that SCB relied upon Mr Mehras representation being attributable to Oakprime because it was thebeneficiary under the credit. But they also relied upon it being Mr Mehras representation, becauseotherwise there could have been no representation and no attribution.

Recognising the acts of the individual as well as the acts of the corporation in tort is important to give theclaimant proper recompense for the wrongs committed by those responsible. Redlich J inJohnson Matthey(Aust) Ltd v Dascorp Pty Ltd

22 says:

Both in Australia and in England a director is in no different position to an agent who, whilst bindingtheir principal may also be liable for their tortuous acts.

Redlich J also said:

This does not mean that directors become personally liable merely because they are directors. Unlessthey procure or direct the tortious conduct the law does not impose upon them liability for the acts ofother agents or employees, whether they are directors of large corporations or what is described as oneman companies.

As Atkin LJ said in Performing Right Society Ltd v Ciryl Theatrical Syndicate Ltd23:

Prima Facie a managing director is not liable for tortuous acts done by servants of the company unless

he himself is privy to the acts, that is to say unless he ordered or procured the acts to be done.

Lord Salmon confirmed this view in Wah Tat Bank Ltd v Chan Cheng Kum24

but added an important factor:

A tort may be committed through an officer or servant of a company without the chairman ormanaging director being in any way implicated. There are many such cases reported in the books. If,however, the chairman or managing director procures or directs the commission of the tort he may bepersonally liable for the tort and the damage flowing from it: Performing Right Society Ltd v CiyrlTheatrical Syndicate Ltd[1924] 1 KB 1, 14, 15 per Atkin LJ. Each case depends upon its own particularfacts.

For a director or senior manager to procure or direct the acts, they must know or have known or they wereindifferent about the legality of the acts or they were indifferent to the loss or damage that would be caused bythe acts25. The direct and procure test is considered to be sound and it remains the standard for determinationof a directors liability.26 The elements for this determination are27:

21Standard Chartered Bank v Pakistan National Shipping Corp. (No. 2) [2000] 1 Loyds Rep 218. This decision has been

reversed by the House of Lords in Standard Chartered Bank v Pakistan National Shipping Corp [2002] UKHL 43; [2003] 1 All ER173; [2002] CLC 1330; [2003] 1 LLR 227; [2002] BCC 846; [2002] 3 WLR 1547; [2003] 1 AC 959; [2002] 2 All ER (Comm)931; [2003] 1 BCLC 244; [2003] 1 Lloyd's Rep 227.22

(2003) 9 VR 171; [2003] VSC 291.23

[1924] 1 KB 1 at 14.24

[1975] AC 50 at 514-515.25Johnson Matthey (Aust) Ltd v Dascorp Pty Ltd(2003) 9 VR 171; [2003] VSC291.

26Johnson Matthey (Aust) Ltd v Dascorp Pty Ltd(2003) 9 VR 171; [2003] VSC291.


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the directors level of involvement

the degree of the directors control exercised.

Knowing these elements and taking careful precautions, a director or other corporate officer would avoidliability by establishing a suitable defence. These officers need to ensure that they exercise due care anddiligence in the performance of their duties.

The important factor to note as the one referred to by Lord Salmon is that each case depends on its onparticular circumstances. It is the director as a person who is subjected to an inquiry of the requisite elements ofthe wrong committed by them. It does not matter that the director is an agent of the corporation. Campbelland Armour express the issue in terms of:

when the civil liability of a corporate agent is called into question, the only relevant enquiry is whetherthe elements of the civil wrong are proved against the agent.28

Also, as a general principle, Campbell and Armour express the following29:

As a matter of principle, there is no convincing reason why the company being liable should exclude orimmunise the agent from being liable.

Nonetheless a balancing of the legal principles is needed to ascertain the liability of directors and the liability ofthe corporation. Batt J of the Victorian Supreme Court said in Private Parking Services (Vic) Pty td v Huggard

30that he was conscious that the law has not readily embraced tort liability of a director and that he was alsoconscious of the consequences in logic of the organic theory.31 However, the cases show there is a balancingrequired between that theory and making directors answerable. Leaving the circumstances where the courtsfind that a director or senior manager may be held personally liable for tortuous acts, the attention of this paperis to explore the nature of the corporation requiring the acts of individuals in order for the corporation to beresponsible for its acts at law.

Nature of a corporation needing further capabilities to be responsible

As a corporation is a legal fiction32

it relies on the capabilities and activities that are attributed to it by the law.This is explained in Northside Developments Pty Ltd v Registrar-Generalwhere Brennan J said

33:

The acts and omissions attributed to a company are perforce the acts and omissions of natural persons.A company is bound by an act done when the person who does it purports thereby to bind the companyand that person is authorized to do so or the doing of the act is subsequently ratified Authority for thepurpose is derived either directly from the constitution of the company or from some antecedent act(typically, a resolution of the governing body) which is itself binding on the company.

A corporation has also been described as an abstraction34. Viscount Haldane LC said35 in Lennards CarryCompany Ltd v Asiatic Petroleum Co Ltdsaid about the corporate abstraction:

It has no mind of its own any more than it has a body of its own; its active and directing will mustconsequently be sought in the person of somebody who for some purposes may be called an agent, butwho is really the directing mind and will of the corporation, the very ego and centre of the personality ofthe corporation.

27Johnson Matthey (Aust) Ltd v Dascorp Pty Ltd(2003) 9 VR 171; [2003] VSC291. See also W.E.A. International Inc v Hanimex

Corporation Ltd(1987) FCR 274 at 283. Determining the liability of the director in this way avoids other consequences whereit might be maintained that the Corporations Act 2001 has preeminence over other laws such as tort law. This argument isdiscussed by the authors . They refer to the argument by Grantham and Rickett in Directors Tortious Liability: Contract, Tort,or Company Law (1999) 62 MLR 133where it is said that directors receive special treatment for tortuous acts as they arethose of the corporation and not those of the directors. Additional requirements found by the courts to make directors liablesuch as directing and procuring, made the tort their own or assumption of personal liability, has the effect of affording

directors a considerable privilege. Grantham and Rickett also say: Unless the director has positively abandoned the shieldof the companys separate personality, personal liability does not arise even where the director has physically committed thetortuous act.28

Campbell N & Armour J, Demystifying the Civil Liability of Corporate Agents, 62 Cambridge Law Journal290 at 300.29Campbell N & Armour J, Demystifying the Civil Liability of Corporate Agents, 62 Cambridge Law Journal290 at 295-296.

30(1996) Aust Torts Reports 81-397 at 63,542.

31The organic theory is the view that he director is the corporation. This is shown for example in Trevor Ivory Ltd v Anderson

[1992] 2 NZLR 57.32

This term was used by Brennan J in Northside Developments Pty Ltd v Registrar-General(1990) 170 CLR 146.33Northside Developments Pty Ltd v Registrar-General(1990) 170 CLR 146 per Brennan J.

34Lennards Carry Company Ltd v Asiatic Petroleum Co Ltd[1915] AC 705.

35At 713.


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This description of the corporate abstraction was interpreted later to mean a general metaphysic ofcompanies

36where, for example, Denning LJ in H L Bolton (Engineering) Co Ltd v T J Graham & Sons Ltd

37

likened a company to a human body38

when he said:

It has a brain and nerve centre which controls what it does. It also has hands which hold the tools andact in accordance with directions from the centre.

This description of the corporation has come under attack in later cases. However, it seems to capture the

notion of the corporation as a separate entity, being a legal fiction that has responsibility much like theresponsibility of a natural person. At law the corporation is not so much an abstraction but is actually a person,albeit a statutory person. It has responsibilities which must be taken seriously and competently otherwise it islikely to become liable to a claimant for wrongs committed. Lord Dennings description of the corporation helpsto explain the nature of the corporation and its responsibilities as identified by the knowledge and actions ofpersons who are its directing mind and will.

The Privy Council in Meridian Global Funds Management Asia Ltd v Securities Commission said39 about this

metaphysic:

But this anthropomorphism, by the very power of the image, distracts attention from the purpose forwhich Viscount Haldane L.C. said, at p. 713, he was using the notion of directing mind and will, namelyto apply the attribution rule derived from section 502 to the particular defendant in the case:

For if Mr. Lennard was the directing mind of the company, then his action must, unless acorporation is not to be liable at all, have been an action which was the action of the company itself

within the meaning of section 502. (emphasis supplied.)

Lord Diplock of the House of Lords went further in Tesco Supermarkets Ltd v Nattras40

by saying that LordDennings description of the corporation as used in subsequent cases was wrong

41:

There has been in recent years a tendency to extract from Denning L.J.s judgment in H. L. Bolton(Engineering) Co. Ltd. v. T. J. Graham & Sons Ltd. [1957] 1 Q.B. 159, 172, 173 his vivid metaphor aboutthe brains and nerve centre of a company as contrasted with its hands, and to treat this dichotomy, andnot the articles of association, as laying down the test of whether or not a particular person is to beregarded in law as being the company itself when performing duties which a statute imposes on thecompany.

In the case in which this metaphor was first used Denning L.J. was dealing with acts and intentions ofdirectors of the company in whom the powers of the company were vested under its articles ofassociation. The decision in that case is not authority for extending the class of persons whose acts are to

36Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 at 509.

37[1957] 1 QB 159 at 172.

38Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 at 509.

39[1995] 2 AC 500 at 509-510. Reference to the legislation is section 502 of the Merchant Shipping Act 1894.

40[1972] AC 153 at 200.

41The issues and facts of Tesco Supermarkets Ltd v Nattras [1972] AC 153 involved the Trade Descriptions Act 1968, in

particular provisions imposing strict liability for offences involving natural persons and corporations. The provisions provide fora defence of due diligence to avoid the commission of an offence under the provisions. These provisions raised common lawissues in conjunction with the statutory prescriptions making a corporation liable. Lord Diplock said that the law of agencydoes not distinguish between a principal being a natural person or a mere abstraction in ascribing the agents physical actsand state of mind to the principal. In relation to criminal offences, Lord Diplock made the point: But there are some civilliabilities imposed by statute which, exceptionally, exclude the concept of vicarious liability of a principal for the physical actsand state of mind of his agent; and the concept has no general application in the field of criminal law. To constitute a criminaloffence, a physical act done by a person must generally be done by him in some reprehensible state of mind. Save in cases ofstrict liability where a criminal statute, exceptionally, makes the doing of an act a crime irrespective of the state of mind in

which it is done, criminal law regards a person as responsible for his own crimes only. It does not recognise the liability of aprincipal for the criminal acts of his agent: because it does not ascribe him his agents mind. Qui peccatper alium peccat per seis not a maxim of criminal law.

On the issue of the defence of due diligence it is interesting to note what Lord Diplock said: Due diligence is in law theconverse of negligence and negligence connotes a reprehensible state of mind---a lack of care or the consequences of hisphysical acts on the part of the person doing them. In particular reference to the requirements of the relevant provisionunder the Trade Descriptions Act 1968 to establish a defence of due diligence, Lord Diplock said a principal need only showthat he personally acted without negligence. Accordingly, where the principal who relies on this defence is a corporation aquestion to be answered is: What natural person or persons are to be treated as being the corporation itself, and not merelyits agents, for the purpose of taking precautions and exercising due diligence? See Lord Diplocks judgment at p. 203 aboutdue diligence in order to succeed as a defence in relation to the terms of the statutory provisions imposing strict liability.


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be regarded in law as the personal acts of the company itself, beyond those who by, or by action takenunder, its articles of association are entitled to exercise the powers of the company. In so far as there aredicta to the contrary in The Lady Gwendolen [1965] P. 294 they were not necessary and, in my view,they were wrong.

According to Lord Diplock a corporation owes its corporate personality and its powers to its constitution42

.This is the obvious and the only place to look to discover by what natural persons its powers are exercisable.Consequently, it was Lord Diplocks view that the question of what natural persons are to be treated in law asbeing the company for the purpose of acts done in the course of its business, including the taking ofprecautions and the exercise [of] due diligence to avoid the commission of a criminal offence, is to be found byidentifying those natural persons who by the memorandum and articles of association or as a result of actiontaken by the directors, or by the company in general meeting pursuant to the articles, are entrusted with theexercise of the powers of the company.

43

This appears to be a sound course to take in legal reasoning to ascertain the acts of a corporation by identifyingthose who are for the purposes, the corporation. However, it dos not assist in explaining why the reference tothe vivid metaphor of the corporation in terms of brains and nerve centre receives attention. Perhaps thegeneral law principles of agency are not enough to explain how a corporation can be held responsible apartfrom its officers irrespective of their seniority of office in the corporation. The judgment of Lord Reid in TescoSupermarkets Ltd v Nattras

44helps us to see that the agency principles are perhaps not sufficient and that

something more is needed in the law to attribute corporate responsibility. Lord Reid started his analysis byconsidering the nature of the personality which by a fiction the law attributes to a corporation. This is LordReids reasoning:

A living person has a mind which can have knowledge or intention or be negligent and he has hands tocarry out his intentions. A corporation has none of these: it must act through living persons, though notalways one or the same person. Then the person who acts is not speaking or acting for the company. Heis acting as the company and his mind which directs his act is the mind of the company. There is noquestion of the company being vicariously liable. He is not acting as a servant, representative, agent ordelegate. He is an embodiment of the company, one could say, he hears and speaks through the personaof the company, within his appropriate sphere, and his mind is the mind of the company. If it is a guiltymind then that guilt is the guilt of the company. It must be a question of law whether, once the factshave been ascertained, a person in doing particular things is to be regarded as the company or merely asthe companys servant or agent. In that case any liability of the company can only be a statutory orvicarious liability.

The personality of the corporation appears to be better described in this view. Also, the issue of corporatecriminal liability is well described as a balance between the strict liability imposed on a corporation under statute

and the criminal liability of natural persons employed by the corporation. This reasoning accords with soundlegal principles as found by Viscount Haldane LC45 in Lennards Carry Company Ltd v Asiatic Petroleum Co Ltd.

The validity of the reasoning used in Tesco Supermarkets Ltd v Nattras is recognised in Hamilton v Whitehead46

where the High Court of Australia used the reasoning of Lord Reid explaining the reasoning used by ViscountHaldane LC in Lennards Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd. Lord Reids reasoning is quoted above.

The High Curt also referred to the statement of Denning LJ in H.L. Bolton (Engineering) Co. Ltd. v. T.J. Graham& Sons Ltd. (1957) 1 QB 159 at p 172.

Tesco Supermarkets Ltd v Nattras and Hamilton v Whiteheadwere referred to in the High Court decision,Houghton v Arms

47and the concept of an embodiment is used.

48

42 [1972] AC 153 at 199.43

[1972] AC 153 at 199-200. Lord Diplock said that This test is in conformity with the classic statement of Viscount HaldaneL.C. in Lennards Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd. [1915] A.C. 705.44

[1972] AC 153 at 170.45

[1915] A.C. 705 at 713. See also Lord Lindleys views about sound legal principles in Citizens Life Assurance Company,Limited v Brown [1904] AC 423 at 427-428 referred to later in this paper.46

(1988) 166 CLR 121.47

[2006] HCA 59.48

Other High Court of Australia cases referring to Tesco Supermarkets Ltd v Nattras are Environment Protection Authority vCaltex Refining Co Pty Ltd[1993] HCA 74; (1993) 178 CLR 477; Federal Commissioner of Taxation v Whitfords Beach Pty Ltd[1982] HCA 8; (1982) 150 CLR 355; Smorgan v Australian and New Zealand Banking Group Ltd[1976] HCA 53; (1976) 134CLR 475.


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A corporations metaphysical subtleties

The metaphysical subtleties of corporations were commented on by the Privy Council in Citizens Life AssuranceCompany, Limited v Brown

49. Lord Lindley said:

To talk about imputing malice to corporations appears to their Lordships to introduce metaphysicalsubtleties which are needless and fallacious.

Instead, Lord Lindley preferred that the company in that case was liable on ordinary principles of agency.50

Lord Lindleys judgment is also interesting to the debate of whether a corporation could be capable of malice ormotive to maintain an action for malicious prosecution and more generally be liable for frauds. His Lordshipsaid:

If it is once granted that corporations are for civil purposes to be regarded as persons i.e., as principalsacting by agents and servants, it is difficult to see why the ordinary doctrines of agency and of masterand servant are not to be applied to corporations as well as to ordinary individuals.

On a policy level, Lord Lindley said51:

These doctrines have been so applied in a great variety of cases, in questions arising out of contract,and in questions arising out of torts and frauds; and to apply them to one class of libels and to deny theirapplication to another class of libels on the ground that malice cannot be imputed to a body corporateappears to their Lordships to be contrary to sound legal principles. (emphasis added)

49[1904] AC 42 at 426.

501904] AC 42 at 426.

51The application of the policy to specific issues of fact can be seen in Lord Lindleys judgment:

Issues of fact identified by the Privy Council in Citizens Life Assurance Company, Limited v Brown [1904] AC 423 at 427-428on the liability of the company for malicious libel published by its servant, Mr Fitzpatrick, acting in the course of hisemployment: Mr Fitzpatrick was:

engaged by a written agreement

a superintendent

to act under instructions given to him by properly authorized officers and in accordance with the rules andregulations of the company

to devote his whole time to furthering the companys business

to receive and pay money, keep proper accounts, and to supervise various agencies under him

to be paid a salary of 5l. a week and a commission on policies procured by him.

The written agreement did not state more precisely what his duties were.

Evidence obtained from witnesses about Mr Fitzpatricks duties (and hence his authority):

to communicate to the company the concerns of policy-holders about statements made against the company

to appoint and look after agents

to stand as an intermediate between the assured and the office

to secure business and save business

to visit policy-holders whose policies have lapsed or are likely to lapse.

Analysis of Mr Fitzpatricks authority:

in the district there is no one above him

scope of authority and employment was wide and by no means clearly defined

no actual authority, express or implied, to write libels nor to do anything legally wrong but it is not necessary thathe should have had any such authority in order to render the company liable for his acts.

A jury (tribunal of fact) is entitled to:

act on their own knowledge of the companys business and habits in considering the scope of Fitzpatricksauthority and employment

consider the necessities of the case arising from the size and nature of the district placed under Fitzpatrickssupervision

consider what would naturally be done in the Colony [of New South Wales] by a person in Fitzpatricks position.

An application of the policy to the facts of a case can be seen in Entwells Pty Lt v National and General Insurance Co Ld[1991]5 ACSR 424 where Ipp J examines the authority of the companys directors/shareholders where the company was atraditional type of small family company that did not hold formal meetings of directors and where the directors discussedmatters over the family dinner table.


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The basis in sound legal principles is essential for proper legal reasoning which on occasions is evaded by courtswhen they resort to phrases that confuse or cause legal reasoning to appear convoluted, where sound ordinaryprinciples are sufficient. In this case Lord Lindley referred to the leading case of Barwick v English Joint StockBank

52in saying that all doubt on this question was removed by the decision of the Court of Exchequer.

According to the Privy Council in Meridian Global Funds Management Asia Ltd v Securities Commission53 the

phrase, directing mind and will of the corporation used by Viscount Haldane in Lennardss Carrying Co Ltd vAsiatic Petroleum Co Ltd

54had been misunderstood. Lord Hoffmann said there has been some

misunderstanding of the true principle upon which that case was decided Lord Hoffmann then began to statethe nature of the problem and then examine the true principle as stated by Lord Haldane.

On rejecting the notion that the anthropomorphism approach was the only one to attribute the knowledge ofnatural persons to the corporation, the Privy Council in Meridian Global Funds Management Asia Ltd v SecuritiesCommission refers to the notion of attribution rules to attribute responsibility to the corporation

55. The Privy

Council said about rules of attribution56:

The companys primary rules of attribution together with the general principles of agency, vicariousliability and so forth are usually sufficient to enable one to determine its rights and obligations. Inexceptional cases, however, they will not provide an answer. This will be the case when a rule of law,either expressly or by implication, excludes attribution on the basis of the general principles of agency orvicarious liability. For example, a rule may be stated in language primarily applicable to a natural personand require some act or state of mind on the part of that person himself, as opposed to his servants oragents. This is generally true of rules of the criminal law, which ordinarily impose liability only for theactus reus and mens rea of the defendant himself.57

The question is then asked: how is a rule like the one applying to natural persons to be applied to acorporation? The possible answers were identified by Lord Hoffmann as58:

the rule was not intended to apply to corporations (where the penalty is community service)

a law could apply to a corporation only on the basis of its rules of attribution (by a board resolution orunanimous agreement by shareholders).

Lord Hoffmann then said that in many cases neither of these solutions is satisfactory. In these cases, the courtmust fashion a special rule of attribution for the particular substantive rule. Lord Hoffmann then said that aspecial rule of attribution is a matter of interpretation or construction of the relevant substantive rule

59. The

relevant substantive rule depends on the facts of the case and the relevant statutory law. This can be seen incontrast in the two examples given by the Privy Council: Tesco Supermarkets Ltd v Nattrass [1972] AC 153 andIn re Supply of Ready Mixed Concrete (No 2) [1995] 1 AC 456.

60In fashioning a special rule of attribution for the

particular substantive rule that is intended to apply to a corporation, the questions to be asked by a court,

according to Lord Hoffmann, are:

How was it intended to apply?

Whose act (or knowledge, or state of mind) was for this purpose intended to count as the act etc of thecorporation?

The answers are found by applying the usual canons of interpretation, taking into account the language of therule (if it is a statute) and its content and policy.61

52L. R. 2 Ex. 29. This judgment was subsequently distinctly approved by Lord Selborne in the House of Lords in Houldsworth

v. City of Glasgow Bank[(1880) 5 App. Cas. At 326], and has been followed in numerous other cases.53

[1995] 2 AC 500 at 506.54

[1915] AC 705 at 713.55 Grantham R, Attributing Responsibility to Corporate Entities: A Doctrinal Approach, 19 CSLJ 168.56

[1995] 2 AC 500 at 507.57

These rules are described as primary and general rules of attribution. Primary rules of attribution are the acts of the directorsand members acting unanimously being attributed to the corporation. General rules of attribution such as agency principlesapply to natural persons as well as to corporations. (Austin RP & Ramsay IM, Fords Principles of Corporations Law, 13

thed,

Reed International Books Australia Pty Ltd t/as LexisNexis Butterworths, 2007 at p 846)58

[1995] 2 AC 50 at 507.59

[1995] 2 AC 500 at 507.60

An Australian case applying the special rule of attribution isAAPT Ltd v Cable & Wireless Optus Ltd (1999) 3 ACSR 63according to Austin RP & Ramsay IM, Fords Principles of Corporations Law, 13

thed, Reed International Books Australia Pty Ltd

t/as LexisNexis Butterworths, 2007 at p 847.61

[1995] 2 AC 50 at 507.


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A legal commentator62

has said that the primary rules of attribution reflect or recognise an organic approach.That is, a decision of the board or of the shareholders in general meeting is ipso facto an act of the companyitself and binds the company, not through the notions of authority which underpin agency, but by virtue of thedecision in question being, in the eyes of the law, the companys own act or decision.

The combination of the primary rules of attribution with supplemented secondary rules applying to naturalpersons such as the law of agency and equitable principles (e.g. estoppel) are needed as a consequence of therules of attribution. However, the circumstances of individual cases could raise legal principles that avoid therules of attribution. Lord Hoffmann of the Privy Council gives us an example where a rule may be stated inlanguage primarily applicable to a natural person and require some act or state of mind on the part of thatperson himself, as opposed to his servants or agents.

Grantham views Lord Hoffmanns statement as saying about such cases:

if it is decided the substantive rule is nevertheless to apply to companies, the court must fashion aspecial rule of attribution to determine whose act (or knowledge or state of mind) was for this purposeintended to count as the act etc. of the company? One finds the answer to this question by applying theusual canons of interpretation, taking into account the language of the rule (if it is a statute) and itscontent and policy.63

InAAPT Ltd v Cable & Wireless Optus Limited64

, Austin J said:

The knowledge of a corporate officer may be attributed to the company for the purpose of applyingstatutory provisions, if the policy underlying those provisions makes it appropriate to do so: Meridian

Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500. Thus, an investmentofficers knowledge about a securities transaction may be attributed to his employer even though itsmanaging director and board were unaware of the transaction, for the purpose of determining whetherthe company has failed to comply with a statutory obligation to disclose a substantial shareholding,because the policy of the substantial shareholding provisions is to compel immediate disclosure. That is acase where, to use Lord Hoffmanns words, neither the companys primary rules of attribution nor thegeneral principles of the law of agency would be adequate to identify the individuals whose knowledgeshould be attributed to the company, and so a special rule of attribution is needed.

The special rule of attribution was needed in that case for the purpose of identifying the corporate officerswhose intentions are capable of being attributed to their company for the purposes of the legislative provision.Austin J also said:

In my opinion, the intentions of those corporate officers who are responsible for planning an acquisitionor the integration of the acquired entity may be attributed to their company for the purpose of

establishing the offerors intentions which must be disclosed under clause 20 [clause 20 of Part A of s750 of the Corporations Law], having regard to the policy underlying that clause, which is to putshareholders in possession of the information required to enable them to make an informed and criticalassessment of the offer and an informed decision as to whether to accept it: Samic, 60 SASR at 303 perKing CJ.

The special rule of attribution based on the substantive provision, in this case clause 20 of Part A of section 750of the Corporations Law, was established by Austin J in the following manner:

I cannot agree with the defendants that the disclosure requirement of clause 20 is confined to theintentions adopted by the board, either expressly or by virtue of their implied assent to board paperswritten by management. If the submission were correct, the offerors management could emasculateclause 20 by strictly limiting the amount of information about planning which they presented to theboard. On the other hand, it cannot be right that the Part A statement must disclose a statement ofintention expressed by an officer of the offeror whenever the officer has corporate authority to make thestatement - for example, I would not think it necessary in normal circumstances to disclose in the Part A

statement representations about the offerors intention made by its Public Relations Department.

The reasoning used by Austin J is reflective of the reasoning used in Citizens Life Assurance Company v Brown65

.It would appear that the reasoning is consistent with sound legal principles.

62Grantham R, Attributing Responsibility to Corporate Entities A Doctrinal Approach, 19 CSLJ 168 at 175.

63Grantham R, Corporate Knowledge: Identification or Attribution?, 59 MLR 732 at 734.

64(1999) 32 ACSR 63.

65[1904] AC 423. See the earlier reference for the facts extracted from this case.


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The New South Wales Court of Appeal used the rules of attribution in North Sydney Council v Roman66. McColl

JA expressed the rules of attribution as:

When it is necessary to determine whether conduct or knowledge or the mental state of an individualemployee or agent should be attributed to a corporation, an organic approach has been developed,which requires the identification, in the specific statutory context, of rules of attribution: DirectorGeneral, Department of Education and Training v MT[2006] NSWCA 270 at [16] [17] per Spigelman CJ(Ipp JA and Hunt AJA agreeing), referring with approval, to Lord Hoffmanns speech in delivering the

judgment of the Privy Council in Meridian Global Funds Management Asia Limited v SecuritiesCommission [1995] 2 AC 500 at 506.

McColl JA referred to Lord Hoffmanns comment about attributing knowledge of an officer to the corporationand saying, the Privy Councils decision should not be understood to mean that whenever a servant of acompany had authority to do an act on its behalf, knowledge of that act will for all purposes be attributed tothe company [and] it is a question of construction in each case as to whether the particular rule requires that theknowledge that an act has been done, or the state of mind with which it was done, should be attributed to thecompany. McColl JA also referred to the statement by Spigelman CJ in Director General, Department ofEducation and Training v MT

67:

Subsequent development of the case law has emphasised particular features of the legislative schemeunder consideration, e.g. the protective nature of the statutory regulation. (See e.g. in the case ofoccupational health and safety legislation, Linework Limited v Department of Labour[2001] 2 NZLR 639;R v Commercial Industrial Construction Group Pty Ltd[2006] VSCA 181 and, in the case of a child

protection statute,ABC Developmental Learning Centres Pty Ltd v Wallace [2006] VSC 171.) Eachstatutory regime must be considered separately, although the case law that has developed, particularlyafter Meridian Global Funds Management, will prove instructive about the kinds of indicators that pointone way or another.

The attribution rules seem to be a kind of indicator for the courts. Spigelman CJ refers to a statement byCallaway JA (with whom Phillips CJ and Tadgell JA agreed) in Director of Public Prosecutions Reference No 1 of1996

68 referring to Lord Hoffmanns analysis in Meridian Global Funds Managementwith approval and said thatit does not tell us the rule of attribution It merely provides a framework for analysis and dispels the notionthat, for all offences, the person with whom a corporation is identified must be its directing mind and will.(emphasis in comment by Spigelman CJs quote) Spigelman CJ also pointed to a number of principles whichare inherent in Lord Hoffmanns judgment identified by Callaway JA, excluding those that related specifically tothe case in the Victorian Court of Appeal.

The rules of attribution are a framework to analyse the circumstances of the matter and the policy underlying

statutory provisions. McColl JA refers to the views of Spigelman CJ:Spigelman CJ pointed out (at [19]) that the relevant rule of attribution will not be the same when acourt is considering vicarious liability for a tort committed by a person associated with a corporation, asthe rule that establishes criminal liability of a corporation for the conduct of a person [and] [t]he policyissues that must be considered in every such context differ considerably.

McColl JA also referred to a case of the Victorian Court of Appeal, R v Commercial Industrial ConstructionGroup

69where it was said, [r]ules of attribution are of particular importance where the statutory provision

imposing liability, or creating a defence, turns on a state of mind.

UK law rules of attribution

According to the Privy Council in Meridian Global Funds Management Asia Ltd v Securities Commission theprimary rules of attribution are generally found in the corporations constitution where clauses expressrequirements or conditions for appointing persons to offices and the making of decisions. Also, the primaryrules may be implied by company law. In relation to the primary rules of attribution, the Privy Council said

70:

These primary rules of attribution are obviously not enough to enable a company to go out into theworld and do business. Not every act on behalf of the company could be expected to be the subject of aresolution of the board or a unanimous decision of the shareholders. The company therefore builds upon

66[2007] NSWCA 27 at para 28.

67[2006] NSWCA 270.

68[1998] 3 VR 352 at 355 lines 35-40.

69[2006] VSCA 181 at [32].

70[1995] 2 AC 500 at 506.


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the primary rules of attribution by using general rules of attribution which are equally available to naturalpersons, namely, the principles of agency.

The use of the rules of attribution are helpful as shown by Austin Js reasoning inAAPT Ltd v Cable & WirelessOptus Limitedbut there are risks in relying on them as a sort of template to decide on the facts of a case whereacts are to be attributed to a corporation. The basic premise is to look to the corporations constitution toidentify the persons who are its directing mind and will and then look to other persons who may have done theacts or possess the relevant knowledge that can be attributed to the corporation. This will depend on thecircumstances of each case. Also, the liability of the person personally or as a joint tortfeasor would need to bedetermined. The use of rules of attribution could deter an exploration of the facts where the issues seek tomake the corporation liable in the circumstances. The courts need to be free of templates or other forms ofstepping principles to determine the outcome of cases involving corporate responsibility. This may be a reasonwhy the rules of attribution approach have not been expressly adopted by the High Court of Australia

71.

The rules of attribution seem to be intended to cover the field by absorbing earlier principles such as theidentification doctrine. The problem for the law can be seen in this commentary:

The identification doctrine served a useful purpose, plugging an attribution gap. However, the doctrinewas articulated in problematic terms. It asked whether the agent was acting as the company, implyingthat it was possible for a person to identify with a corporate personality, gave rise to a metaphysicalnotion in which an agent identified with the company was seen as embodying the company.

72

Campbell and Armour refer to Trevor Ivory Ltd v Anderson73

where Cooke P said that a person may be

identified with a corporation so as to be its embodiment or directing mind and will, not merely its servant,representative, agent or delegate. This notion of embodiment is not helpful as it can cause lower corporateofficers to avoid liability and, as the corporation is found liable, the acts cannot be simultaneous with theagent74. The rules of attribution75 also have a problem as it can cause misdirections based on misunderstandingsof who is responsible for the wrongful act. This can be seen in the case ofABC Developmental Learning CentresPty Ltd v Wallace

76where the Victorian Court of Appeal said:

In our view, on the proper construction of s 27 of the [Childrens Services Act 1996] no rules ofattribution are called for. In R v Commercial Industrial Construction Group Pty Ltd (CICG), this Courtexplained why no rules of attribution (of acts of an employee to the employer company) were called forwhere the employer was alleged to have breached its statutory duty to ensure a safe workingenvironment for employees. In our opinion, the duty of a proprietor of a childrens service to ensureadequate supervision of children is a duty of the same kind.77

The Court of Appeal then said:

The same duty is now imposed by s 21(1) of the Occupational Health and Safety Act 2004. Breach ofthat general safety duty does not depend on proof of mens rea. There is no defence of honest andreasonable mistake, so the liability is properly to be regarded as absolute. Because of the practicabilityqualification, the obligation is not absolute but the liability for breach is absolute nevertheless. Unlike theposition in Tesco Supermarkets Ltd v Nattrass, there is no due diligence defence, nor is it a defence toshow that the breach was due to the act or default of another person.

71The Australian Law Reform Commission said: The principles of attribution developed in Meridian have not been expressly

adopted by the Australian High Court but have been considered in recent cases by the Federal Court. (ALRC Report 95,Principled Regulation: Federal Civil and Administrative Penalties in Australia, 18 December 2002. However, the ALRC reportstates in footnotes: In substance, however, the Meridian principle of attribution does not appear to significantly differ fromthe method used by the High Court to attribute knowledge of the officers of the corporation to the corporation in Krakowskiv Eurolynx Properties Ltd(1995) 183 CLR 563.72Campbell N & Armour J, Demystifying the Civil Liability of Corporate Agents, 62 Cambridge Law Journal290 at 293.

73[1992] 2 NZLR 57 at 520.

74

Campbell N & Armour J, Demystifying the Civil Liability of Corporate Agents, 62 Cambridge Law Journal290 at 293 werethe authors refer to this scenario as the disattribution heresy.75

In particular the special rule of attribution.76

[2007] VSCA 138.77

The Magistrate in first instance and Bell J on appeal used Meridian Global Funds Management Asia Limited vSecuritiesCommission [1995] 2 AC 500 as the appropriate framework for analysis. The Court of Appeal referred to Bell Jsstatement where it is said: According to Lord Hoffmann, there is no one answer to the question whether the criminal actionsof employees (or directors or contractors) of a company can be counted as the actions of the company. In some cases it isnecessary to fashion a special rule of attribution. Depending on the scope of the rule, the actions of the employees may ormay not be attributed to the company. The scope of the rule will depend upon the courts interpretation of the terms of theoffence and the policy of the enabling statute.


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Reference was made in this case to Professor Sir John Smith, Health and Safety at Work [1995] Crim LR 654,65578 (emphasis added):

Where a statutory duty to do something is imposed on a particular person (here, an employer) and hedoes not do it, he commits the actus reus of an offence. It may be that he has failed to fulfil his dutybecause his employee or agent has failed to carry out his duties properly but this is not a case of vicariousliability. If the employer is held liable, it is because he, personally, has failed to do what the law requireshim to do and he is personally, not vicariously, liable. There is no need to find someone in the case of acompany, the brains and not merely the hands for whose acts the person with the duty can be heldliable.The duty on the company in this case was to ensure ie to make certain that persons are notexposed to risk. They did not make certain. It does not matter how; they were in breach of their statutoryduty and, in the absence of any requirement of mens rea, that is the end of the matter.

The use of the rules of attribution must be handled carefully.

Australian law position

The Australian law position is primarily based on the directing mind and will principle where natural personscan be the embodiment of the corporation. This can be seen in the line of High Court cases referring to or usingthe reasoning of Lord Reid in Tesco Supermarkets Ltd v Nattras. Also, the reasoning of Viscount Haldane LC inLennardss Carrying Co Ltd v Asiatic Petroleum Co Ltdis also referred to by the High Court in conjunction withLord Reids reasoning as a sort of explanation for Viscount Haldanes reasoning. The High Court decision inHollis v Vabu Pty Ltd

79 said generally that under contemporary Australian conditions, the conduct by the

defendant of an enterprise in which persons are identified as representing that enterprise should carry anobligation to third persons to bear the cost of injury or damage to them which may fairly be said to becharacteristic of the conduct of that enterprise.

The decision of the High Court in Krakowski v Eurolynx Properties Ltd80 is taken to be the latest Australian law in

relation to corporate responsibility. It is used by other courts as the law governing the outcome of casesinvolving corporate responsibility where it has been further explained.

On appeal in the Federal Court of Australia inJ McPhee & Son (Aust) Pty Ltd v ACCC81

the application of the lawin Krakowski v Eurolynx Properties Ltdby the primary judge was accepted:

In reasoning in this way his Honour correctly applied the principles set out in Krakowski v EurolynxProperties Ltdat 582-583 and Meridian Global Funds Management Asia Limited v Securities Commission[1995] 2 AC 500 at 506-507. In particular the principles set out in Krakowski v Eurolynx Properties Ltdapply to ascertaining corporate intention. The case involved a claim of fraudulent misrepresentation anda majority of the High Court (Brennan, Deane, Gaudron and McHugh JJ) held that the state of mind of

Eurolynx could be established from the state of mind of several persons including its agent and officers.

Despite the mention of Meridian Global Funds Management Asia Limited v Securities Commission, the appealjudges preferred the decision in Krakowski v Eurolynx Properties Ltdas the guiding principle for corporateresponsibility.

In Brescia v QBE82, Hammerschlag J of the New South Wales Supreme Court referred to authorities that are

binding on him, saying:

in order to attribute a state of mind to a company, the collective states of mind of officers of thecompany relevantly connected with it are treated as being the state of mind of the company. A divisionof function amongst officers of company does not relieve it from responsibility determined by referenceto the knowledge possessed by each of them: Brambles Holdings Ltd v Carey(1976) 15 SASR 270 at 279;Krakowski v Eurolynx Properties Ltd(1995) 183 CLR 563 at 582-583; VACC Insurance Ltd v BP AustraliaLtd(1999) 47 NSWLR 716 at 726; Entwells Pty Ltd v National and General Insurance Co Ltd(1991) 5ACSR 424 at 427 and following.

A reconciliation of sorts between Krakowski v Eurolynx Properties Ltdand Meridian Global Funds ManagementAsia Limited v Securities Commission may be seen in Bray v F. Hoffman-La Roche Ltd

83:

78The Court of Appeal also said: This commentary was quoted by the English Court of Appeal inAttorney-Generals

Reference (No.2 of 1999) [2000] QB 796, 812.79

[1002] HCA 44; (2001) 207 CLR 21.80

(1995) 183 CLR 563.81

[2000] FCA 365; [2000] 172 ALR 532 at 570.82

[2007] NSWSC 598.83

[2002] FCA 243; [2002] 190 ALR 1 at 42.


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In a different context, in Krakowski v Eurolynx Properties Ltd(1995) 183 CLR 563 (Krakowski) at 583Brennan, Deane, Gaudron and McHugh JJ pointed out that a division of function amongst officers withina corporation responsible for different aspects of the one transaction does not relieve the corporationfrom responsibility determined by reference to the knowledge of each of them. Their Honours citedDunlop v Woollahra Municipal Council(1975) 2 NSWLR 446 at 485 where Wootten J observed:

Corporations must be held responsible through those who act on their behalf, whether an act isperformed by one person or by a number. Doubtless there may be problems of mixed motives asbetween individuals, as indeed there often are within an individual, but it is better for the courts to

grapple with the true facts, however difficult this may be, than to shut out the realities of corporateaction by arbitrary rules of evidence.

In Krakowskitheir Honours also cited Tesco Supermarkets Ltd v Nattrass [1972] AC 153 at 170 whereLord Reid stated that as a company must act through living persons, although not always one or thesame person, [it] must be a question of law whether, once the facts have been ascertained, a person indoing particular things is to be regarded as the company or merely as the companys servant or agent.

In Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 at 507Lord Hoffman, delivering the advice of the Privy Council, stated that, in a statutory context, the questionof whose act is that of the company is one of interpretation. He said the question arises as to [w]hoseact (or knowledge, or state of mind) was for this purpose intended to count as the act etc of thecompany.

Justice Owen of the Western Australian Supreme Court said in The Bell Group Ltd (In Liquidation) v WestpacBanking Corporation84:

As I have already said, the circumstances in which knowledge of an individual is to be imputed to acorporate entity and in which reliance on that knowledge to sheet home liability to the corporate entityare issues about which the parties are in dispute. This is particularly so in relation to the aggregation ofthe knowledge of several individuals. I have not yet heard argument on them. But for present purposes Iam content to assume that the position is as stated in Krakowski v Eurolynx Properties Ltd(1995)183 CLR 563 (approving Brambles Holdings Ltd v Carey(1976) 15 SASR 270). I take those principlesto be as follows:

1. If mental states like knowledge or belief are to be attributed to a notional and metaphysicalentity like a corporation, this can only be done by attributing to it the knowledge or beliefactually possessed by some one or more of its officers or employees.

2. Very difficult questions can arise in this connection. But it is a fallacy to say that any state of

mind to be attributed to a corporation must always be the state of mind of one particularofficer or employee alone and that the corporation can never know or believe more than thatone person knows or believes.

3. It is the company's belief that is important. The belief of any officer or employee is relevant onlyinsofar as that belief may be imputed to the company.

4. When beliefs or opinions or states of mind are attributed to a company it is necessary to specifysome person or persons so closely and relevantly connected with the company that the state ofmind of that person or those persons can be treated as being identified with the company sothat their state of mind can be treated as being the state of mind of the company.

5. Thus, a division of functions among officers or employees of a company responsible fordifferent aspects of a transaction does not relieve the company from responsibility determinedby reference to the knowledge possessed by each of them.

The responsibility of the corporation is bound up in the authority of the natural person to bind the corporation.So a corporation is bound by an act purporting to bind it not only when the person who does the act has thecompany's authority to bind it by that act but also when that person is held out by the company as having thatauthority and the party dealing with the company relies on that person's ostensible authority.85

84[2004] WASC 273 at para 48.

85Northside Developments Pty Ltd v Registrar-General(1990) 170 CLR 146 per Brennan J.


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Ostensible authority

The notion of ostensible authority is described in Freeman and Lockyer v Buckhurst Park Properties (Managal)Ltd

86 by Diplock LJ as an apparent authority being a legal relationship between the principal and the contractorby a representation, made by the principal to the contractor, intended to be and in fact acted upon by thecontractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within thescope of the apparent authority, so as to render the principal liable to perform any obligations imposed upon

him by such contract.The significance of this apparent authority is that the principal is bound by the actions of the agent. The agentmust purport to make the agreement as the principal. The principal is however estopped from asserting that theprincipal is not bound by an agreement entered into by the principals agent. These principles apply mutatismutandis to authority to bind a company by other acts done purportedly on behalf of a company

87. A

corporation is bound in this manner. A corporation is not bound where the person who does the act hasneither actual nor ostensible authority to bind the company by doing the act which the other party asserts to bebinding the company.

88

According to Diplock LJ two further characteristics are required of the corporation in applying the ostensibleauthority principles:

1. the corporations constitution limits the corporations capacity

2. the corporations acts relies on the acts of the agent.

The corporations constitution permits the corporation to perform certain acts. Where these constitutional actsare performed by the agent, they are taken by the law to be done by the corporation. Also, the corporationperforms an act by conferring authority on the agent. The acts of the agent may be those of directors ormanagers (used in the broad sense) of the corporation.

This is referred to in the cases as indoor management and the principles concerning dealings with acorporation carrying the presumption of the authority of agents to act for the corporation have been labeled theindoor management rule. The indoor management rule needs the authority of the corporations constitutionunder which the acts of the agents are performed in order to bind the corporation. The rule is not discussed

89

except to the extent that it shows how the responsibility of corporations generally arises in Australian law inparticular.

Corporate responsibility arises from its constitution. Consequently, actions done by authorised persons underthe corporations constitution can be taken to be actions of the corporation; hence corporate responsibility. Theconnection between corporate responsibility evidenced by the actions of authorised persons is described byBrennan J:

When the indoor management rule applies, it covers each of the links between the constitution of thecompany and the particular act (or omission) done (or omitted) by a purported officer or agent of thecompany in the transaction. It covers the due making of appointments of the original directors, ofsubsequent directors, of other officers and of agents; it covers the conferring of authority on officers andagents; and it covers the satisfaction of conditions governing their exercise of authority in the instantcase.

The authority issue is important in establishing if the corporation can be bound by its officers actions. Despitethis apparently clear expression of the law there will be cases where the extent of the authority will bequestioned. A statutory provision cannot properly cover all possible circumstances in which a corporation wouldbe held responsible at law. The common law must be allowed to mould the concept of corporate responsibilitytaking account of changing circumstances and to determine the circumstances in which the notion of corporateresponsibility will apply.

The evolution of the law needs to develop the defences available to corporations to protect corporate interests.The views of the Parliamentary Committee to leave corporate responsibility to the common law are equallyapplicable to the common law notion of corporate responsibility. Connected to the developing law in Australiaon corporate responsibility and corporate liability is the issue of the responsibility of persons personally for the

86(1964) 2 QB 480 at 503. The principles were approved by the High Court of Australia in Cabtree-Vickers Pty Ltd v Australian

Direct Mail Advertising and Addressing Co Pty Ltd(1975) 133 CLR 72 at 78.87Northside Developments Pty Ltd v Registrar-General(1990) 170 CLR 146 per Brennan J.

88Northside Developments Pty Ltd v Registrar-General(1990) 170 CLR 146 per Brennan J.

89For an overview of the indoor management rule see Austin RP & Ramsay IM, Fords Principles of Corporations Law, 13

thed,

Reed International Books Australia Pty Ltd t/as LexisNexis Butterworths, 2007 at Chs 13 and 14.


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breach of the law by their corporations. This issue was discussed by the Corporations and Markets AdvisoryCommittee (CAMAC) in its Report, Personal Liability for Corporate Fault, (September 2006). CAMAC identifiedtwo areas of concern that needed addressing:

a marked tendency in legislation across Australia to include provisions that impose personal criminalsanctions on individuals for corporate breach by reason of their office or role within the company(rather than their actual acts or omissions) unless they can establish an available defence

considerable disparities in the terms of personal liability provisions, resulting in undue complexity andless clarity about requirements for compliance.

These issues need to be resolved in conjunction with the development of the law of corporate responsibility.Distinguishing the dividing line is essential to apportioning responsibility and hence liability to the right person.The Corporations Act 2001 attempts to apportion responsibility but its provisions can be limiting.

General law concepts for corporate responsibility in the Corporations Act

Corporate responsibility can be found throughout the Corporations Act 2001 which provides for the manyaspects of a corporations existence and operation. It has powers and functions given under the CorporationsAct to function as a person at law.

The general law concepts for corporate responsibility as derived under the indoor management rule areincorporated to some extent in the Corporations Act. In particular, Corporations Act 2001, ss 128-129 expressthe general law rule. While the purpose of these statutory provisions as expressed in section 128(1) to entitle a

person to make assumptions (expressed in section 129) about dealings with a company, they show that thecompany is held responsible for its acts and not the directors and other officers.

It should be noted that Corporations Act 2001, ss 128-129, only applies to companies and not to other types orforms of corporations90. Consequently, the general law rule applies despite Corporations Act 2001, ss 128-129.

The corporation can act to execute documents by applying appropriate measures as required under itsconstitution and by doing things that may be required under other laws for the proper execution of thedocument. In relation to companies Corporations Act 2001, s 127, provides for the execution of documents by acompany using its common seal or by the signatures of officeholders as described.

Corporate responsibility in other legislation

The recognition of corporate responsibility is being recognised and expressed in legislation. The obviousinsertion of corporate responsibility and defining how this occurs can be seen in Trade Practices Act 1974 (Cth),s 84.

91This provision is extracted (with commentary) in the Annexure. This provision facilitates proof of

corporate responsibility beyond the position which would otherwise obtain at common law.92

Looking at the liability of corporate officers for corporate misconduct, the Corporations and Markets AdvisoryCommittee (CAMAC) said in its Report, Personal Liability for Corporate Fault, (September 2006):

corporate fault is in addition to, rather than instead of, the imposition of criminal sanctions on thecompany in question.

In the environmental protection, occupational health and safety hazardous goods and fair tradingstatutes examined by the Advisory Committee, it is common, particularly in State and Territory legislation,for individuals to be treated as criminally responsible for corporate fault where:

a company has breached the statute, and

the company does not have a defence to that breach, and

the individual comes within a relevant class of corporate personnel, and

the individual has not established a relevant defence.

In relation to environmental laws, for example, CAMAC viewed the Commonwealth Environment Protectionand Biodiversity Conservation Act 1999,ss 494, 495 and the Commonwealth Hazardous Waste (Regulation ofExports and Imports) Act1989, s 40B. These provisions cause a person involved in the corporation to be guiltyof an offence where the corporation contravenes the provisions. For a commentary on other corporate offences

90See discussion in Aus

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